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How Having Choices Can Increase Your Social Security

Those of us who work to educate the public about their Social Security benefits love to complain about how ridiculously complicated the rules are: more than any one person can comprehend entirely. We’re always surprised to learn about new rules and wrinkles.

The truth is though that these complex rules give rise to many choices. And we can use those choices to create a claiming strategy that serves us better for our particular circumstances…or even allows us to move to our dream country sooner and still enjoy greater financial security over the long term.

To illustrate what I mean about choices, let’s take a look at an example…

Kyle is 66 and Carla is 62. They have $200,000 in total savings and have settled on a monthly spending budget of $3,000, including a substantial travel budget.

One option is for both of them to start their benefits immediately: Kyle could receive his full age-66 benefit of $1,800 and Carla could collect a reduced benefit at 62 of $1,200. Combined, their $3,000 would just cover their expenses, leaving their $200,000 nest egg untouched. (We’ll assume their savings just keep up with inflation to keep it conservative: we don’t want to rely on rates of return that might not happen. If they do, there will be extra money: that’s a happy worry and I’m sure Kyle and Carla can figure out how to spend it all on their own…)

This strategy is weak on two counts. First, they are just treading water with their savings and a major financial hit later in life could wipe out too much of it.

Second, the survivor benefit is only $1,800: it would be $2,376 if Kyle waits to claim at 70. That’s a formula for weak financial security—and worry—as they get older.

If they both wait to claim at 70, they would collect about $4,500 a month, locking in the maximum survivor benefit. While their savings would bottom out at about $26,000 just before Kyle starts his benefit, at their blended life expectancy of 85, their savings reach $258,000 and are growing about $17,000 yearly.

An even better choice for them could be a hybrid strategy. Carla claims a reduced benefit now of $1,200. In four years, Kyle claims his maximum age 70 benefit of $2,386 (locking in the maximum survivor benefit) and Carla suspends her benefit (she’s 66) for the next four years. When she resumes at age 70, her benefit has increased by 32% to $1,548 (plus any inflation) going forward.

Combined they collect just under $4,000 a month. Their savings never dip below about $84,000 and reach $243,000 at their blended life expectancy of 85, growing at about $12,000 per year.

Why might they want to choose such a strategy?

Suppose their dream country offers a residence visa if they can show $1,200 in guaranteed monthly income? A Social Security benefit is one of the easiest ways to demonstrate such income in most countries that offer such visas. Along with the major convenience of permanent resident status, such a visa might qualify them for access to in-country medical insurance programs and a host of valuable retiree discounts.

The overall convenience and savings could well be worth Carla claiming her benefit right away. Then, she can switch her benefit off when she turns 66 because Kyle is now 70 and his benefit starts at the maximum amount…and they are able to keep showing a guaranteed monthly income.

Carla resumes her benefit four years later when the value has grown from $1,200 a month to $1,584. Of course she would always have the option to restart her benefit at any time before age 70, if necessary.